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Maggette


Total Posts: 1147
Joined: Jun 2007
 
Posted: 2019-08-13 06:36
Hi,

my understanding and intuition about macro economics is horrible (even though I have the feeling that many many people thinking different of themselves are talking out of their ass).

I would never trade these things (my over-engineered ETF portfolio does not know and hence does not care), but I am very interested...because it is obviously important.

So I would love to have a general "macro thread" on this forum and pick the brains of the members here about geopolitics and macro economic development.

Hence I will start with that question: where is the US-China trade war headed? How severe you think is the situation? What are the possible scenarios and outcomes?

Thx

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...

tbretagn


Total Posts: 276
Joined: Oct 2004
 
Posted: 2019-08-13 10:01
That's a good question M.
There is a multitude of point of views though, which all have truth in it.
Mine is:
Trump wants to keep the news cycle on him, and a war with China (albeit a trade one) is a perfect way to do this.
In the end, at the time where he thinks he will gain the more from it, he will strike a "deal".
Market people think he wants a win on Intellectual Property or tech or whatever. But I think he just wants a "win" he can sell to his base. It's tough to explain to people with education the tangible benefits of IP, but it's easy for anyone to grasp $100bn of soybeans.
On the other hand, and that's where it's interesting, China also needs a "war", becaus eit's a great way to tighten the national identity (it's hard to identify yourself towards a value, much easier to identify yourself against something).
So the trade war really helps Xi Jingpin to bolster the Chinese/Communist sentiment, and we are heading towards the anniversary of the party, so it helps Xi to keep the war going.
When you see that Huawei is releasing its pure player mobile OS, you realise that China just wants to be independant, and this war helps accelerate the process ("we have to be independant because those pesky americans want us to slave for them, so it will be painful short term but we will grow strong from it" rethoric).

Now i think this will end around Q1-Q2 next year, around the midterms, which is when it would be perfect for him to tighten the race against the democrats.
Picture Trump with loads of balloons, making an announcement China yielded to him.

And China will make an deal work for it as well.

Et meme si ce n'est pas vrai, il faut croire en l'histoire ancienne

Maggette


Total Posts: 1147
Joined: Jun 2007
 
Posted: 2019-08-13 16:54
Thx
So I understand that it is more or less all an political reality show, with both players ready to take some risks hurting their national or even the global economy in order to look good?

So you don't see too many risks of an real escalation?

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...

nikol


Total Posts: 769
Joined: Jun 2005
 
Posted: 2019-08-13 20:07
Politics is just facade and pretext.

Look at volume of international trades contracted in fiat currencies - dollars shrinks, euro gains, but at the same time both dollar and euro loose ground to "others", like yuan. Reduction of usd, eur, gbp is reduction of interest/credit payments to maintain financial system. Change of transaction landscape. Slowly growing crypto takes some part of the cake. Read WTO annual report as it says some nasty things about usd.

Look hydrocarbons (yes, despite all screaming it is the king), lithium/nickel, nuclear resources. Renewable hype is just the way to sell those at higher margin. Hot spots are Cyprus fields, Venezuela, Iran, Central Africa.

Look at logistics. Ask yourself which trade routes will dominate next. Consider N.Korea as a lock on S.Korea (it's an island not peninsula). North Sea Route vs Singapore. How/where Japan (India, China).gets energy. Connect Asia and Europe by straight line. New routes will inevitably change the trade financing and insurance (see usd problem and opportunity for "others" and crypto).

Finally, the biggest hype gets AI/automation. They help to squeeze larger margin. Now, Sea ports without men is a reality. Driver-less trucks, ships, airplanes. Further automation of corporate processes, optimization of customers demand, prediction of goods/food supply. Optimization of above using open data, which are stored in data centers (globalization vs legal attempts to localize it).

Ambitions of Trump, Xi, Junker-Tusk-Drughi, Putin, Modi, Brexit and trade wars etc etc are just at the top of the iceberg I have pictured above.

PS. typos - mobile, fat fingers

PSS. Health (prosperity) of corporations is a function of energy/logistic/automation/finance in that order. Finance is at the end, because there are plenty of healthy businesses who stay out of debt, IPOs and hence out of banks.


tbretagn


Total Posts: 276
Joined: Oct 2004
 
Posted: 2019-08-14 07:21
@Maggette No I don't see many risks of full blown war, but a lot of rumblings, louder and louder, and a resolution.
It is in no one's interest to do too much damage (see for example yesterday, the delay on the new on electronics, so americans won't be impacted for Black Friday/ Xmas purchases).

The rationale of Trump's attacks on China is actually sound (China is too closed an economy, it needs some reform and it is not acting fairly with respect to the world on IP etc...).
But this is not Trump's aim to fix the world. Just to hit where it hurts, so he can get the most bandwidth.

Et meme si ce n'est pas vrai, il faut croire en l'histoire ancienne

EspressoLover


Total Posts: 381
Joined: Jan 2015
 
Posted: 2019-08-15 15:54
I don't know. It just doesn't seem like the total magnitude of bilateral US-China trade is large enough to have a serious economic impact. Particularly on the US side.

* US exports to China are only 0.6% of GDP. (0.8% of Chinese GDP)
* US imports from China are 2.7% of GDP. (3.7% of Chinese GDP)
* I can't find a China specific breakdown, but Asia as a whole only accounts for 8% of S&P 500 revenue.

Even with 100% tariffs and minimal substitution, these numbers alone aren't large enough to cause a recession or bear market when US growth is consistently running at 3%.

I guess there could be second-order effects, and those are what's really spooking the market. In some sense I feel like the back and forth on China is a canary in the coalmine. There's this factional war within the Trump White House between the Navarro/Miller populists and the Mnuchin/Kushner pro-business free-marketers. I think that investors feel like the harder Trump pushes on trade the more likely he is to spend a potential second term focusing on immigration and antitrust instead of deregulation and tax reform.

The other side of it is that while US-China is only a tiny fraction of global trade it has the risk of a sort of policy contagion. Like if the US shuts down Chinese imports, then China responds by devaluing the yuan hard. So now other manufacturing exporters have the devalue to compete. Now Europe gets pressured to raise trade barriers because its domestic manufacturers are getting clobbered. And the US raises tariffs on even more countries in response. And so on, until it erupts into a global conflagration.

Good questions outrank easy answers. -Paul Samuelson

Maggette


Total Posts: 1147
Joined: Jun 2007
 
Posted: 2019-08-16 08:53
Germany is already slowing down a bit. Even though you always factor in the German "Angst" that makes us yelling "doom and gloom" when the order books aren't stacked with orders that require maximal capacity for the next 10 years and growth is slowing down a bit.

But coming in third in the "Exportweltmeister" category in 2018 again shows our dependency on global trade.

I guess germany is quite vulnerable...

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...
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